From green investment strategies to internationalization: a firm-level investigation

In this paper we empirically investigate the relationship between investments in environment-oriented equipment and firm internationalization entry choices. Drawing on the Porter hypothesis and on the firm heterogeneity theory, we adopt a structural model where we first estimate the impact of green investment strategies on the level of productive efficiency (TFP). Subsequently, we assess if induced productivity influences the likelihood to engage in internationalization activities, first through exports and then through FDI or offshoring. Relying on a rich firm-level dataset on Italian manufacturing, our results show that firms increase their commitment to internationalization when their higher productivity is induced, among other factors, by a green investment strategy that integrates environmental protection with the reduction in the use of raw materials. In so doing, we provide a ‘green investment-based’ explanation for the link between TFP-heterogeneity and trade.